Where are the customers’ yachts?: Macquarie Research

Event
 Q1FY14 earnings preview reflect low demand: For 128 stocks under our
coverage, we are forecasting a meagre 5% YoY revenue growth for Q1, which
is the lowest level seen over a decade and almost in line with GFC. This is
driving a 5% increase in EBITDA, though PAT is expected to show no growth
given MTM forex losses. We think Metals and Cement will be the worst
performers, while Private Banks, NBFCs and Power sector will show the
fastest growth.
 Earnings revisions are a key driver of stocks prices; however, several have
run up against this trend and look expensive – these include ACEM, UTCEM,
INFY and ZEETV. On the other hand, stocks where positive earnings
revisions are holding up and yet have underperformed include REC, PFC,
ICICI, YES and NTPC.
Impact
 Revenue growth at all-time low: Impact of a stalling economy is well visible
now, with revenue growth in the vicinity of GFC levels of around 5%. We do
expect that there will be revival in rural demand as the monsoon is
progressing well. Also, government spending is expected to increase by 30%
YoY in the 2
nd half as it prepares for general election due early next year.
 Margins have stabilised: EBITDA margins have benefited from the
moderation in inflation. There is a bit of worry that the fall in INR might stoke
inflation again. However, commodity prices are already falling globally as the
slowdown in China has pushed most commodities in an oversupply situation.
There is risk from crude oil, though, given the unrest in Egypt, but the
government is absorbing this with measured increase in diesel prices.
 Power sector is making a comeback: Sectors expected to show profit
growth of 10% or more include power, telecom, pharma, consumer and
media. Amongst financials, PSU banks are expected to drag growth down
with an 8% decline in profits, while private banks and NBFCs are expected to
show 23% and 21% profit growth, respectively. On the negative side, cement
and metals would likely be the worst-performing sectors with negative
revenue growth leading to decline in profits. Other sectors expected to show
decline in profits include autos and real estate.
 Consensus expectations are conservative: Consensus is building in 12–
13% earnings growth driven by 8% revenue growth and a slight improvement
in EBITDA margins. We think that as GDP growth recovers closer to 6% from
5%, corporate revenue growth has potential to surprise upwards.
Outlook
 Holding up despite FII outflows: Markets have held up well despite FII flows
turning negative. Once the anxiety over phasing out of QE3 has eased, focus
will shift back to domestic economics and we are hopeful of a recovery in 2nd
half, driven by improved government spending and prospects of normal
monsoon. Consider cyclical stocks.

��

-->